The correct option is Price definitely increases..
Explanation
In a market economy, the equilibrium price and quantity are determined by the intersection of the demand and supply curves. When these curves shift simultaneously, the net effect on price and quantity depends on the direction of the shifts and their interaction.Analysis of Simultaneous Shifts:
- Increase in Demand: An increase in demand shifts the demand curve to the right. Viewed in isolation, this creates excess demand at the original price, pushing the equilibrium price upward and the quantity upward.
- Decrease in Supply: A decrease in supply shifts the supply curve to the left. Viewed in isolation, this creates a shortage at the original price, pushing the equilibrium price upward and the quantity downward.
- Combined Effect on Price: Since both the increase in demand and the decrease in supply exert upward pressure on the price, the equilibrium price will definitely increase.
- Combined Effect on Quantity: The effect on quantity is indeterminate (ambiguous). The demand shift tends to increase quantity, while the supply shift tends to decrease it. The final quantity depends on the relative magnitude of the two shifts; it could increase, decrease, or remain unchanged.
Key Takeaway:
When demand rises and supply falls, both forces reinforce a rise in price, making the price increase certain. However, the forces oppose each other regarding quantity, making the change in quantity indeterminate without further data.